The Influence Of Macroeconomy On The Interest Rate Term Structure

The term structure of interest rate is at a certain point, the relationship between capital rate of return and the maturity, which reflects the relationship between capital supply and demand of different maturities. It is the benchmark of economic behaviors such as asset pricing, financial product design, hedging and risk management. And it can provide reference for the relevant departments’bond management and investors’bond investment. The research on term structure of interest rates is very important part in the field of financial research,and in recent years, the relationship between macroeconomic and the interest rate term structure has become the mainstream of the domestic and foreign scholars conducting research on term structure of interest rates. Large number of theoretical and empirical researches finds that the term structure contain macroeconomic information such as future economic growth and inflation. Bond market has higher degree of marketization of interest rates, and for the countries with mature financial markets, interest rates of the government bond market can be used as a barometer of macroeconomic performance. For China, although the bond market starts late, but in recent years has developed rapidly and degree of marketization has been deepened. Especially the inter-bank bond market has become an important part of the financial markets in china. So studying the influence factors of inter-bank bond market’s interest rate term structure and grasping its future changes in the direction and extent have important reference value for investors to make investment decisions and the gorvernment to analyze the economic situation and develop appropriate macroeconomic policies.This paper firstly reviews the traditional theory of the term structure of interest rates, then introduces several types of static fitting model and analyzes the pros and cons of each fitting model.We finally select the inter-bank fixed-rate bond yield curves compiled and published by the Central Securities Depository Trust& Clearing Corporation for our analysis. We used Principal Component Analysis and dynamic NS model the two techniques to extract three underlying factors from our yields sample data. By comparing time series of three factors obtained by the two methods to the three proxy variables which experientially on behalf of the term structure of interest rates’own characteristics, we found that although the dynamic NS model has a good fit for each term yields, but the correlation between the level factor gotten from the model and level factor of the sense of experience is weak. And the three factors gotten by the Principal Component Analysis method not only explains more than99%change in the yield curves, but can reflect the morphological characteristics of the term structure of interest rates.In order to study the effects of macro economy on the three factors of interest rate term structure, this paper selects5key macroeconomic variables. Three factors were associated with these macroeconomic variables to establish VAR model seperately, and then using the impulse response functions and variance decomposition technology analyzes the macro-economic shocks’dynamic effects and the influencing degree on level, slope and curvature factors of the term structure of interest rates. Our results showed that:(1) whether the real economy,the price level, changes in the money supply growth or tight market funds will have positive impacts on the level factor. The impact of macroeconomic variables on the slope factor of short duration,in which the real economy and the seven-day repurchase rate on the slope factor are not significant,while price level, money supply and stock price index have a positive effect on the slope factor, that is the rise in the price level, changes in the money supply growth and increased stock prices will make term spreads widened.Macro economy has a negative and little impact on curvature facter.(2) The greatest impact on the level factor is the price level, followed by the stock price index and the seven-day repurchase rate. This shows that inflation change the overall level of the term structure of interest rates as the main influence factors, followed by the capital side factors. The greatest impact on the slope factor is monetary policy and stock price index and the greatest impact on the curvature factor is the inter-bank seven-days repo rate.(3) The slope factor does include the macro economic information, and it can help predict future economic growth and inflation, but it does not include the short-term inflation information.